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The political determinants of executive compensation: Evidence from an emerging economy

Hao Liang, Luc Renneboog () and Sunny Li Sun

Emerging Markets Review, 2015, vol. 25, issue C, 69-91

Abstract: In regulated economies, corporate governance mechanisms such as executive compensation are less driven by market-based forces but more subject to political influence. We study the political determinants of executive compensation for all listed Chinese firms in the context of an exogenous shock that removed market frictions in share-tradability. Under strong political constraints, state ownership reduced the managerial pay levels and increased pay-for-performance sensitivity (to asset-based benchmarks). Board independence and compensation committees do not curb managerial pay, and market-based factors do not have a significant influence. However, these effects reversed following the governance shock (removal of market frictions in share tradability).

Keywords: Executive compensation; Political economy; State ownership; Market friction (search for similar items in EconPapers)
JEL-codes: G34 H70 M12 P26 P31 (search for similar items in EconPapers)
Date: 2015
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